This summary is based on the first quarter fiscal 2007 earnings call conducted by Johnson and Johnson (JNJ) on April 15, 2008.
Management:
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Chief Financial Officer, Vice President – Finance: Dominic J. Caruso
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Vice President of Investor Relations: Louise Mehrotra
Key Investors Issues
- Sales were $16.2 billion, up 7.7% as compared to $15 billion in 2007.
- Earnings were $3.6 billion or $1.26 a share, up 39% from the prior year.
- The firm repurchased $5.1 billion worth of stock.
Fourth Quarter Highlights
Worldwide sales were $16.2 billion, up 7.7% as compared to $15 billion in 2007 as operational growth was 2.6% and currency contributed 5.1 points.
- In regions outside the U.S., operational growth was 2.4%, while the effect of currency exchange rates positively impacted results by 11.3 points.
- The strongest performing region was the Western Hemisphere excluding the U.S., growing 6.2% on an operational basis.
- Asia-Pacific/Africa region grew by 3.2% operationally while Europe grew 0.8% operationally.
Net earnings were $3.6 billion or $1.26 a share, up 38.5% from $2.6 billion or 88 cents a share in 2007 following a reduction in cost of goods across segments
- The prior year results had been adjusted for the after-tax impact of the in-process research and development charge of $807 million associated with the acquisition of Conor Medsystems.
- Cost of goods sold at 28.5% is down 60 basis points as compared to the same period in 2007, with reductions seen across all three segments.
- Selling, marketing, and administrative expenses of 31.6% of sales were down 30 basis points from the prior year due to reductions primarily in the pharmaceutical business.
Investment in research and development as a percent of sales was 10.6%, 40 basis points less than 2007.
- Research and development spending is up nearly 4% in the quarter.
- Interest expense net of interest income of $16 million compares to $33 million of net interest income in 2007 on higher average debt position as the firm continued buying back shares as part of the repurchase program.
The firm began purchasing shares in August of 2007 of the $10 billion repurchase program and to date, has purchased $5.1 billion of stock.
- The integration of the Pfizer Consumer Healthcare business and brands continues to be on track to meet or exceed the target of $500 million to $600 million in cost synergies by 2009.
- The Company raised its earnings guidance for full-year 2008 to $4.40 - $4.45 per share, which does not include the impact of any in- process research and development charges or other special items.
Business Highlights:
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Consumer segment sales of $4.1 billion increased 16.2%, operational growth was 9.9% while currency contributed 6.3%.
- U.S. sales were up 11.7% while international sales grew 8.3% on an operational basis.
- Sales for the over-the-counter pharmaceuticals and nutritionals increased 21% on an operational basis compared to the same period in 2007, with the successful launch of ZYRTEC in the U.S. in January of this year being the major contributor to this increase.
Additionally, both the adult and pediatric analgesics achieved strong growth, driven by an increased uptake in the rapid release gels and the later start to the winter flu season.
- The skin care business achieved operational sales growth of 4% with sales in the U.S. growing at 7% and sales outside the U.S. up 2% on an operational basis.
- Strong growth was driven by Clean and Clear, Aveeno, and Nutrogena, due to a combination of new product launches and strength in the core businesses due to innovative technologies, like Helioplex.
- These gains were partially offset by the discontinuation of a small line of facial refreshers.
Baby care products achieved operational growth of 11with growth in the U.S. of 6% due to increased babycenter.com sales.
- Sales outside the U.S. grew 13% on an operational basis, driven by the strong double-digit growth of wipes, hair care, powder, and oil.
- Women’s health achieved operational growth of 2% and sales in the U.S. were down 9% due to increased competition, while sales outside the U.S. were up on an operational basis by 9% with strong growth in both the internal and external sanitary protection lines.
- Operational sales growth in the oral care franchise was 3% with U.S. sales down 2% and sales outside the U.S. up 9%.
- Strong growth was achieved for the Listerine product line due to whitening strips launched in the third quarter of 2007 and the strong performance of Listerine mouthwash, though sales declines in Reach toothbrushes and Rembrandt products partially offset this growth.
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Pharmaceutical net sales of $6.4 billion were up 3.3% versus the same period last year.
- On an operational basis, sales were down 0.6% with positive currency contributing 3.9 points.
- Results continue to be impacted by generic competition on some of the products, namely DURAGESIC, and outside the U.S. RISPERDAL ORAL in many countries.
- The combined effect of this generic competition has reduced the first quarter worldwide pharmaceutical operational sales growth by 3.5 percentage points with the U.S. impact estimated at approximately 1% and the impact outside the U.S. estimated at nearly 8%.
Additionally, the firm saw a retraction in the U.S. market for ESAs following the ODAC discussions, the label changes, and changes to reimbursement.
